Universal Life Policies – The Bane of Their Buyers?

Non-guaranteed universal life policies – Current Assumption UL in industry-speak – are currently the bete noir of the insurance community, not to mention their buyers.

Recently, the Wall Street Journal ran a piece lamenting these once-popular products, claiming that clients who eagerly scooped them up in the 1980s and 1990s are now ruing the purchase, which ultimately bought them nothing but financial pain.

To many observers, Current Assumption ULs are true dogs that have now turned on their owners with powerful jaws. Others believe they are merely misunderstood and carelessly abused. Where lies the truth?

The problem seems to rest in unrealistic expectations. In the ‘80s and ‘90s, Current Assumption ULs paid high single-digit returns. That kind of performance was not expected to continue through the life of the product, but many customers were unclear on the point. These buyers are paying now – often holding policies they can’t afford to fund properly.

The guilty parties appear to be insurance agents who oversold the product back in the day, and customers who failed to conduct a proper suitability analysis – that is, to assure they could afford to fund it into the future.

What can agents do to help customers stuck with underperforming Current Assumption UL policies? In some cases, even if the client has sufficient funds to address the policy’s underfunding, it might not make sense to do so. If the policy is salvageable, increasing premium payments may be necessary or the death benefit can be cut. However, it might make better sense to sell the policy or switch into a different kind of product altogether.